Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

Redundancy pay

Redundancy is the loss of employment at the employer’s initiative because the employer no longer needs the job done by the employee to be done by anyone³⁴². Or in other words, “it is the abolition of a position which leads to that position being redundant³⁴³”.

During the post-war era of full employment, redundancy pay for retrenched workers was determined by industrial tribunals on a case-by case basis. Indeed such cases were infrequent, given the rarity of retrenchments at this time. It was not until the economic recession and the resulting widespread job losses in the early 1980’s that called for the need for the industrial tribunals to deal with the issue in a more formal, structured and uniform manner. In response, Unions commenced a number of ‘redundancy cases’ across Australia.

At the federal level it was the ‘Termination, Change and Redundancy Case’ of 1984³⁴⁴ (First TCR Decision) that set the first national standard for redundancy provisions, while other cases were also being run at a State and Territory level. All of these decisions were made during a period of economic recession and reflect the grim reality and devastating personal consequences of the economic situation at that time³⁴⁵.

It was against this background, that these cases established a minimum standard for redundancy payments, notice periods and eligibility criteria. The need for some form of compensation for retrenched workers was undeniable, however the industrial tribunals were also weary not to burden business with extra costs at a time when they could least afford it. On review of these cases, it is fair to say that it was the latter consideration that really guided the scale of redundancy payments established at that time. As acknowledged by the Full Bench of the NSW Industrial Relations Commission in 1994, “a balance had to be struck but the constraints were severe³⁴⁶”.

The minimum redundancy standards now included in the NES share much in common with their predecessors. In fact there has been little if any change to these standards, notwithstanding that much has changed in terms of the economic position of Australia and the make-up and structure of the modern workforce.

There has always existed some judicial debate about the primary purpose of redundancy payments. On the one hand, redundancy pay is “a utilitarian response directed as far as it could reasonably be to the central core of the social and economic disadvantages of those displaced from employment³⁴⁷”. In determining the appropriate scale for redundancy pay, the industrial tribunals were required to decide at which point an ‘industrial’ citizen is no longer the responsibility of industry and therefore becomes the responsibility of the social services network. As such, redundancy pay was a form of income maintenance to reduce the financial hardship suffered by retrenched workers.

However, an alternative view was made by the first TCR Decision, where it was determined that, first and foremost, the purpose of redundancy payments is to compensate employees for the loss of non-transferable employment ‘credits’ such as long service leave and personal/sick leave. Essentially, the payment compensates employees for the loss of recognition of their service with the employer.

There are of course other detrimental consequences of retrenchment that are beyond financial. Redundancy pay is also compensation for the inconvenience, hardship and anxiety of searching for another job and/or changing jobs. This includes such things as loss of seniority and the loss of security of employment. Again, this arises in part because of the loss of recognition of service.

Regardless of the view, it is clear that redundancy entitlements are intended for the benefit of employees.

Since that time, the Australian labour market has evolved, and notably ‘non-standard’ workers now make up a larger proportion of the workforce. Non-standard workers include casual employees, independent contractors, and employees on fixed term or task contracts. In addition, the way in which business operates in the contemporary market has changed. There is less focus on direct employment and a greater reliance on external labour sources such as labour hire and contracting out.

As we refer to elsewhere, these kinds of working arrangements disenfranchise workers who are distanced from the source of control over their working lives. There is often a disconnect between their employer (the labour hire or contracting company) and the host, where they perform their work and who give them day to day instructions. This disconnect is exacerbated by dual working conditions, where often labour hire workers are engaged on inferior wages and conditions. Ultimately, loyal and often long service is no longer protection from job loss.

Redundancy entitlements have not kept pace with the changes to the way in which workers are engaged, the way in which work is performed, or the way in which the contemporary market place operates.

This growing issue becomes clearer with a review of the ways in which employers avoid their statutory safety net obligations to redundant employees. We consider these exclusions and avoidance mechanisms below. This has the effect of making already vulnerable workers, more vulnerable to ‘quick and cheap’ company restructuring.

Exclusion – Ordinary and Customary Turnover of Labour

Section 119 Redundancy pay of the FW Act, provides:

Entitlement to redundancy pay

(1)  An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a)  at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or

(b)  because of the insolvency or bankruptcy of the employer.

The first exclusion is that provided for in subs 119(1)(a). An employee who has had their employment terminated at the employer’s initiative will be excluded from a safety net entitlement where the redundancy was due to the ordinary and customary turnover of labour. The origin of this exclusion is found in the First TCR Decision. Its meaning is set out in the Termination, Change and Redundancy Case - Supplementary Decision (Second TCR Decision). ³⁴⁸

In the Second TCR Decision the Full Bench said:

“There is no doubt that we did not intend the redundancy provisions to apply where an employee is dismissed for reasons relating to his/her performance, or where termination is due to a normal feature of a business.” (Emphasis added.)

The question then begs, what is a normal feature of a business? The industrial tribunals have typically taken a case by case approach in answering this question. However the exclusion itself has not kept pace with the evolving ‘normal features’ of doing business.

The exclusion for the “ordinary and customary turnover of labour” should only be applied in very limited circumstances. At the time that this exclusion was conceptualised, it was intended to only apply to work that was clearly intermittent and as such it was assumed that employees were compensated for this intermittency in their terms and conditions of employment (for example in the building and construction industry). The payment of redundancy in the circumstances was therefore considered to be ‘double dipping’ or overcompensation when an employee did not have an ongoing expectation of work in any event.

Intermittency of work is now far more prevalent than it was at the time that the TCR decisions were being considered. It is a feature of the contracting services industry, which has grown in pace with the privatisation of government services. Also, largely as a result of growing privatisation, the industries and sectors in which contracting services businesses operate has diversified.

In response to this, industries such as the building and construction industry have implemented redundancy schemes in order to provide a safety net for workers should they become unemployed. Schemes such as Incolink and ACIRT (Australian Construction Industry Redundancy Trust) mean that workers are able to access redundancy pay as well as a range of other services (e.g. accident and illness insurance, portable sick leave, income protection etc.). These schemes are funded by employers, who make regular contribution payments on behalf of their employees. The amount of contribution is set down in an industrial instrument. These schemes have been operating for over 20 years and are now an established part of the building and construction industry (including those in the construction/contracting, engineering construction/contracting and labour hire industries).

However, other workers in the growing contracting services industries are not protected by such schemes, and hence have no reliable safety net making them in effect, second class workers. This means that already vulnerable workers, are made more vulnerable. Workers in industries such as, contract cleaning, security and catering suffer just the same during times of unemployment as other workers. Their entitlements should not be eroded just because of the industry in which they work.

It is unfair that employees bear the brunt and risk of corporations structuring their operating models such that employees find themselves at the bottom of a chain of control. It is the business engaging their employer who is in control, but the employees have no ability to influence or comment upon the way that business acts. It is also particularly unfair to rely on attempts, for example in a contract or employment or letter of offer, to notify an employee that their employment is contingent upon the retention of a commercial contract.³⁴⁹ The shifting of risk onto the most vulnerable party should not be so easily achieved.

Businesses which operate in industries involving periodically rotating contracts, the rotation of which is a construct to ensure that employees are disenfranchised, should not be able to rely on the “ordinary and customary turnover of labour” exclusion. The rotating nature of the contracts is a constructed, rather than normal feature of the business. It is unfortunate that the prevalence of such practices has led to an ill-founded acceptance that such a feature is normal. We are concerned with growing workplace relations jurisprudence that appears to accept ‘as a given’ that the loss of a commercial outsourcing contract is as normal feature of a business.³⁵⁰ It cannot be said that the loss of a commercial outsourcing contract, particularly in industries where there is a small group of bodies seeking tenders from a pool of regular and known providers, is due to the ordinary and customary turnover of labour. In such circumstances it is within the ability of a business to control, and if not that business, the business to whom it is providing labour or services, when a contract is lost and when labour is no longer required.